Peter Hendy (Eden-Monaro, Liberal Party) Share this | Link to this | Hansard source

I am rising on a matter I feel strongly about. At the election, the coalition promised that we would review the taxation system within two years of coming to government. We will prepare a comprehensive white paper on tax reform. My view is that the review should start well within the two years and I am hoping that it will start in earnest soon as there is a vital need to do so. This will maximise the opportunity for selling any tax reforms that may eventuate. The coalition explicitly said that we will take proposals from that white paper to a subsequent election. As the Prime Minister said, when opposition leader, in his budget-in-reply speech to this House on 16 May last year, 'We will finish the job that the Henry review started and the Rudd-Gillard-Rudd government squibbed.' As he further said, 'We want taxes that are lower, simpler and fairer.'

One issue that small businesses and farmers in my electorate of Eden-Monaro have been raising with me is the burden of income taxation. A key issue is capital income taxation—by that, I mean the capital gains tax, CGT. Not too many years ago in 2006, I was commissioned by then Treasurer Peter Costello to do an independent taxation review with Dick Warburton, Chairman of the Board of Taxation. It was an international comparison of Australia's tax system. With the greatest respect, while Peter Costello was hoping to get me to conclude that we had a sublime taxation system, it did not quite work out that way. In one area, capital income, the review showed we had one of the heaviest taxation burdens in the OECD. The review, which ran to 415 pages, noted on page 206:

Capital gains are taxed in many different ways around the world. New Zealand does not impose CGT and of those that have a CGT regime some have a stepped rate (as the holding period increases the tax rate decreases), some have a flat rate and others (such as Australia and Canada) use a discount system for taxing capital gains (only a proportion of the gain is taxable).

Page 207 of the review noted:

For the short-term holding period, Australia’s top marginal tax rate on capital gains is the third highest of the OECD-10 comparable countries while for the long-term holding period Australia’s rate … is the second highest.'

I say again, many countries have a stepped or tiered capital gains tax regime. Simply put, the longer you hold an asset the lower the relative taxation burden on the capital gain. In many countries, the tax burden falls to zero if it is a long-term investment. In other countries, they recognise that that is good for business investment and ultimately for jobs.

Many members will know that I am a former chief executive of the Australian Chamber of Commerce and Industry. When I had that job, I oversaw the publication of a very good document entitled Taxation reform blueprint: A strategy for the Australian Taxation System 2004-2014. We have now reached 2014 and there is still some unfinished business. Thus the ACCI had a policy where, if you held an asset for five years, the capital gains tax burden would be halved and then fall to zero if the asset was held for 10 years or more. There are also other reform options related to capital gains tax, including rollover provisions, carry-back of losses and franking credits. As the ACCI tax reform blueprint noted, the 2004 pre-election survey showed that CGT was either a major or a moderate concern for 61.7 per cent of businesses. More recent surveys reconfirm this.

The ACCI pre-election survey of over 1,000 businesses across the whole of Australia in 2013 showed that the level of concern had in fact risen to 68.4 per cent. I think there should be a debate on capital gains tax, not to increase it, as some left-wing advocacy groups would argue, but to decrease the CGT burden so that small businesses and farmers in electorates like mine can prosper and invest in jobs growth in the regions. It will have spin-offs for venture capital and research and development. However, I think that the most important thing is that we get the tax review going as soon as possible.